Net Neutrality is one of those Orwellian words that mean exactly the opposite of what they sound like. There is a battle that goes on in the marketplace in virtually every communication medium between content creators and content deliverers. We can certainly see this in cable TV, as media companies and the cable companies that deliver their product occasionally have battles that break out in public. But one could argue similar things go on even in, say, shipping, where magazine publishers push for special postal rates and Amazon negotiates special bulk UPS rates.

In fact, this fight for rents across a vertical supply chain exists in virtually every industry. Consumers will pay so much for a finished product. Any vertical supply chain is constantly battling over how much each step in the chain gets of the final consumer price.

What "net neutrality" actually means is that certain people, including apparently the President, want to tip the balance in this negotiation towards the content creators (no surprise given Hollywood's support for Democrats). Netflix, for example, takes a huge amount of bandwidth that costs ISP's a lot of money to provide. But Netflix doesn't want the ISP's to be be able to charge for this extra bandwidth Netflix uses - Netflix wants to get all the benefit of taking up the lion's share of ISP bandwidth investments without having to pay for it. Net Neutrality is corporate welfare for content creators.

Check this out: Two companies (Netflix and Google) use half the total downstream US bandwidth. They use orders and orders of magnitude more bandwidth than any other content creators, but don't want to pay for it (source)

Why should you care? Well, the tilting of this balance has real implications for innovation. It creates incentives for content creators to devise new bandwidth-heavy services. On the other hand, it pretty much wipes out any incentive for ISP's (cable companies, phone companies, etc) to invest in bandwidth infrastructure (cell phone companies, to my understand, are typically exempted from net neutrality proposals). Why bother investing in more bandwidth infrastrcture if the government is so obviously intent on tilting the rewards of such investments towards content creators? Expect to see continued lamentations from folks (ironically mostly on the Left, who support net neutrality) that the US trails in providing high-speed Internet infrastructure.

Don't believe me? Well, AT&T and Verizon have halted their fiber rollout. Google has not, but Google is really increasingly on the content creation side. And that is one strategy for dealing with this problem of the government tilting the power balance in a vertical supply chain: vertical integration.

Postscript: There are folks out there who always feel better as a consumer if their services are heavily regulated by the Government. Well, the Internet is currently largely unregulated, but the cable TV industry is heavily regulated. Which one are you more satisfied with?

Update: OK, after a lot of comments and emails, I am willing to admit I am conflating multiple issues, some of which fit the strict definition of net neutrality (e.g. ISP A can't block Planned Parenthood sites because its CEO is anti-abortion) with other potential ISP-content provider conflicts. I am working on some updates as I study more, but I will say in response that

President Obama is essentially doing the same thing, trying to ram through a regulatory power grab (shifting ISPs to Title II oversight) that actually has vanishly little to do with the strict definition of net neutrality. Net neutrality supporters should be forewarned that the number of content and privacy restrictions that will pour forth from regulators will dwarf the essentially non-existent cases of net neutrality violation we have seen so far in the unregulated market.

I am still pretty sure the net effect of these regulations, whether they really affect net neutrality or not, will be to disarm ISP's in favor of content providers in the typical supply chain vertical wars that occur in a free market. At the end of the day, an ISP's last resort in negotiating with a content provider is to shut them out for a time, just as the content provider can do the same in reverse to the ISP's customers. Banning an ISP from doing so is like banning a union from striking. And for those who keep telling me that this sort of behavior is different and won't be illegal under net neutrality, then please explain to me how in practice one defines a ban based on a supply chain rent-division arguments and a ban based on nefarious non neutrality.

So Google and Microsoft and Netflix and other large, well-capitalized incumbents will pay for speedy service. Smaller companies that can't—or that ISPs just aren't interested in dealing with—will get whatever plodding service is left for everyone else. ISPs won't be allowed to deliberately slow down traffic from specific sites, but that's about all that's left of net neutrality. Once you've approved the notion of two-tier service, it hardly matters whether you're speeding up some of the sites or slowing down others.

At some level, this statement is silly. Really, does Netflix and Gmail really need the same connection speed? And by the way, it makes a lot of difference whether investment is to give more speed to certain websites beyond what the consumer gets now vs. slowing down all the non-payers. What honest consumer could ever see these options as similar? Trust a progressive to consider cutting down all the tall trees to be equivalent to raising the short trees.

But here is another thought - Drum is among those who frequently complain about his lack of ISP choices and the slowness of developing speedier service. But if I am an ISP, do I really want to invest billions in extra bandwidth when the benefits of this investment will accrue 100% to companies like Netflix rather than myself? And don't be confused, studies have shown Netflix using a third of all Internet capacity during peak times. (updated data here, showing Google and Netflix together using more than half the capacity). This strikes me as a free rider problem that normally the Left would jump right on.

It's hard to guess how things will play out, but there is a case to be made that Netflix and others paying for the bandwidth they consume will be a huge boon to home ISP access. A second stream of income to ISP's based on bandwidth and speeds may be just what is needed to revitalize that business. Of course, monopoly providers could just drop the money to the bottom line without doing anything to their infrastructure, but I trust that Netflix and Google will have every incentive to pound the hell out of ISP's who don't actually invest. They are not particularly happy about this extra expense, so if they pay it, they are gong to make damn sure they get the speed and bandwidth they promised. We individual customers have in the past had little power to influence ISP's bandwidth and speed investments, but now we have powerful allies.

I am always fascinated by folks who fear private power but support continuing increases in public / government power. For me there is no contest - public power is far more threatening. This is not because I necesarily trust private corporations like Goldman Sachs or Exxon or Google more than I do public officials. Its because I have much more avenues of redress to escape the clutches of private companies and/or to enforce accountability on them. I trust the incentives faced by private actors and the accountability mechanisms in the marketplace far more than I trust those that apply to government.

Here is a good example. First, Kevin Drum laments the end of privacy because Google has proposed a more intrusive privacy policy. I am not particularly happy about the changes, but at the end of the day, I am comforted by two things. One: I can stop using Google services. Sure, I use them a lot now, but I don't have to. After all, I used to be a customer or user of AOL, Compuserve, the Source, Earthlink, and Netscape and managed to move on from those guys. Second: At the end of the day, the worst they are tying to do to me is sell me stuff. You mean, instead of being bombarded by irrelevant ads I will be bombarded by slightly more relevant ads? Short of attempts of outright fraud like identity theft, the legal uses of this data are limited.

Kevin Drum, who consistently has more faith in the state than in private actors, actually gets at the real problem in passing (my emphasis added)

And yet…I'm just not there yet. It's bad enough that Google can build up a massive and—if we're honest, slightly scary—profile of my activities, but it will be a lot worse when Google and Facebook and Procter & Gamble all get together to merge these profiles into a single uber-database and then sell it off for a fee to anyone with a product to hawk. Or any government agency that thinks this kind of information might be pretty handy.

The last part is key. Because the worst P&G will do is try to sell you some Charmin. The government, however, can throw you and jail and take all your property. Time and again I see people complaining about private power, but at its core their argument really depends on the power of the state to inspire fear. Michael Moore criticizes private enterprise in Capitalism: A Love Story, but most of his vignettes actually boil down to private individuals manipulating state power. In true free market capitalism, his negative examples couldn't occur. Crony capitalism isn't a problem of private enterprise, its a problem of the increasingly powerful state. Ditto with Google: Sure I don't like having my data get sold to marketers, and at some point I may leave Google over it. But the point is that I can leave Google .... try leaving your government-enforced monopoly utility provider. Or go find an alternative to the DMV.

There may be some trouble brewing in paradise, thanks to a seemingly draconian law currently under consideration in Hawaii's state legislature. If passed, H.B. 2288 would require all ISPs within the state to track and store information on their customers, including details on every website they visit, as well as their own names and addresses. The measure, introduced on Friday, also calls for this information to be recorded on each customer's digital file and stored for a full two years. Perhaps most troubling is the fact that the bill includes virtually no restrictions on how ISPs can use (read: "sell") this information, nor does it specify whether law enforcement authorities would need a court order to obtain a user's dossier from an ISP. And, because it applies to any firm that "provides access to the Internet," the law could conceivably be expanded to include not just service providers, but internet cafes, hotels or other businesses.

Americans fed up with Google's nosiness can simply switch email providers. But if they live in Hawaii, they will have no escape from the government's intrusiveness.

Yesterday, the House Judiciary Committee voted 19-10 for H.R. 1981, a data-retention bill that will require your ISP to spy on everything you do online and save records of it for 12 months. California Rep Zoe Lofgren, one of the Democrats who opposed the bill, called it a “data bank of every digital act by every American” that would “let us find out where every single American visited Web sites.”

It really pisses me off that the Republicans wrap themselves in the mantle of individual liberty when challenging Obama over insane spending levels, but then, simultaneously, do this kind of crap.

Libertarians vote for Republicans when they get tired of Democrat's authoritarian meddling in economics. Libertarians vote for Democrats when they get tired of Republican's tough-on-crime/terrorism/sex/drugs civil rights violations. But what to do when Republicans like Bush expand government like Democrats, and Democrats like Obama show little respect for individual liberties:

Google and an alliance of privacy groups have come to Yahoo's aid by helping the Web portal fend off a broad request from the U.S. Department of Justice for e-mail messages, CNET has learned.

In a brief filed Tuesday afternoon, the coalition says a search warrant signed by a judge is necessary before the FBI or other police agencies can read the contents of Yahoo Mail messages--a position that puts those companies directly at odds with the Obama administration.

Yahoo has been quietly fighting prosecutors' requests in front of a federal judge in Colorado, with many documents filed under seal. Tuesday's brief from Google and the other groups aims to buttress Yahoo's position by saying users who store their e-mail in the cloud enjoy a reasonable expectation of privacy that is protected by the U.S. Constitution.

The government theory in the case seems pretty bizarre to me. I guess the folks who have been trying to convince me to use PGP aren't so paranoid after all.

Suppose the police want to read your e-mail. To come into your home and look through your computer, of course, they'd need a full Fourth Amendment search warrant based on probable cause. If they want to intercept the e-mail in transit, they have to go still further and meet the "super-warrant" standards of the Wiretap Act. Once it lands on your Internet Service Provider's server, a regular search warrant is once again the standard"”assuming your ISP is providing access "to the public." If it's a more closed network like your work account, your employer is permitted to voluntarily hand it over. But if you read the e-mail, or leave it on the server for more than 180 days, then suddenly your ISP has become a "remote computing service" provider rather than an "electronic communications service provider" vis a vis that e-mail. So instead of a probable cause warrant, police can get a 2703(d) order based on "specific and articulable facts" showing the information is "relevant and material" to an investigation"”a much lower standard"”provided they notify you. Except they can ask a judge to delay notification if they think that would impede the investigation. Oh, unless your ISP is in the Ninth Circuit, where opened e-mails still get the higher level of protection until they've "expired in the normal course," whatever that means.

Yesterday a federal judge in San Francisco ruled that the Al Haramain Islamic Foundation can recover damages under the Foreign Intelligence Surveillance Act (FISA) for illegal eavesdropping on telephone conversations between its officials and its American lawyers. U.S. District Judge Vaughan Walker rejected the Obama administration's argument that the state secrets privilege barred the foundation's lawsuit. Although Barack Obama ran on a promise to use the privilege less promiscuously than his predecessor, his Justice Department, like Bush's, claimed that even acknowledging the warrantless wiretapping of Al Haramain would endanger national security.

Al Haramain learned about the surveillance after the government accidentally gave its lawyers a classified document discussing it, but the foundation was not allowed to cite that document in making its case. Instead it relied on public statements by various federal officials that Walker concluded were sufficient to show the surveillance had occurred. Since there was never any serious question that warrantless surveillance of communications involving people in the United States violated FISA, the government lost its case once Walker refused to let it hide behind the state secrets privilege. "Under defendants' theory," he noted, "executive branch officials may treat FISA as optional and freely employ the SSP to evade FISA, a statute enacted specifically to rein in and create a judicial check for executive-branch abuses of surveillance authority....Because FISA displaces the SSP in cases within its purview, the existence of a FISA warrant is a fact that cannot be concealed through the device of the SSP."

This story was interesting, in a creepy Orwellian sort of way, in that it has turned out to be really, really hard to bring suit against this administration for this crime because people have a hard time demonstrating in court that they have standing to sue. In effect, one has to show that he has been wiretapped to then sue that the surveillance was illegal, but the information to prove that one has been wiretapped is classified and therefore unavailable. Only an accidental leak allowed this case to proceed.

Am I the only one who is wildly less likely to buy an Audi after Sunday? Advertising is often about image. Frankly, almost none of the ads yesterday addressed their product's or service's value propositions in any real way. They are trying to connect their product with images and emotions - Coke has always been great at that. Beer commercials always try to connect their product with, well, sex with hot women. This is pretty traditional for beer, though less so for ISP hosting until GoDaddy came along.

So now "Audi" has been permanently tied up in my mind with intrusive state control and loss of individual liberty. Perhaps they were trying to be funny, but I really got the impression they were more than half serious, maybe because several of the examples (composting, light bulbs) are real issues subject to state control even in parts of this country.

I will admit I don't even know who Essent Healthcare is. I don't know if they do a good job or a bad job. I do know that there is a blogger dedicated to sounding the alarm about Essent. But there are such gadflies for nearly every major corporation. But in this case Essent is making the classic PR mistake of trying to silence a blogger by taking expensive-to-defend-against legal action against the blogger. Specifically, Essent is trying to force the blogger's ISP to reveal the identity of the blogger and his confidential informants, many of whom are employees of Essent likely to face retaliation (more here).

I made the point that this kind of thing always backfires, as publicity tied to such suits and the inevitable backlash from bloggers tends to greatly expand the audience of these small bloggers from a few people who are already disgruntled with the target company to a much wider and more damaging audience.

Case in point: Look who is suddenly the #1 & #2 Google search return for "problems at essent healthcare." Neither site was in the top 100 a few days ago.

McQ at QandO posts a number of examples of jihadi websites hosted on American ISPs, and goes on to urge:

If you're doing business with any of these ISPs, you may want to advise
them of your displeasure that your fees are helping support a company
that is hosting websites of avowed enemies of your nation and culture.
Granted, because these are in arabic, the ISPs may not even know what
the sites are, but now you do. Point the ISPs to the MEMRI post. Tell
them that websites which call for the killing of Americans, waging war
against us and teaching radicals how to make bombs are unacceptable.
This is not something which you must wait on government to do. These
sites need to come down and they need to come down because of
grassroots and market pressure to do so. Shut them down.

I have a number of problems with this. Of course, in a free society, one can choose an ISP any way one likes. However, given the nature of the Internet, this is one of those suggestions that may sort of feel good but have no chance of having any kind of impact. Even if wildly successful, all you are going to do is drive these sites to offshore hosts, and I sure hope no one is talking about setting up Chinese-type filters and firewalls at our borders.

Further, there is nothing I like more than having my ISP blissfully ignorant of, and apathetic to, whatever it is they are hosting for me. I DO NOT want to gear up ISP's to start reviewing and disallowing content. That is a horribly slippery slope that will only end badly, as we have started to see with video banning at Google and YouTube. In fact, given the precedents we have seen at YouTube, I would be willing to guess that if ISP's did start** putting a filter on sites and start** banning them based on public complaints, that McQ is not going to be happy be my sense is that their political filters are different than his. Just look at campuses today -- many universities have defined a new right not to be offended that trumps free speech. Do we really want to bring this horrible "innovation" to the Internet?

Finally, I think its awesome and what makes America great that we are so tolerant of speech from even the nuttiest of our worst enemies. I had kind of hoped that GoDaddy would be on his list, just to experience the cultural irony of GoDaddy girl meets fundamentalist Islam.

** Actually, "start" is not the right word, since some undoubtedly kill certain sites when people complain. Usually but not always today this is based more on irritating Internet behavior (e.g. spamming) rather than content of speech. It would be more accurate to have said "substantially increase the banning of sites based on content."